From relocation to re-globalization

This column was first published in L’Opinion on 8th december 2021

The world is never going to be the same again as it was in 2019. The past history of pandemics suggests that we should expect major geopolitical changes. Multinationals will have to rethink several aspects of the way in which their industrial operations are organized geographically.

In taking control of the port of Los Angeles for $2.3 billion, the CMA-CGM Group has shown unshaken confidence in the future flow of world trade. And yet, in 2020, politicians had promised that the post-Covid world would see opportunities being seized to repatriate a considerable number of operations. The facts show quite a different reality: surprisingly, since 2020, and despite successive lockdowns, China has gained five points of market share — from 25% to 30% — in global exports of manufactured goods.

The limited number of relocations is the result of various concurrent factors coming together. Firstly, the discovery that the same products are not necessarily made at different places in the world. Secondly the problem of duplicating the whole of an ecosystem, as in the case of the semi-conductor industry. Finally, the lack of qualified manpower in Europe, notably in the USA, where the working population participation rate fell by four points during the crisis.

However, this does not mean that we are going to see a return to the world of 2019. Far from it! The past history of pandemics suggests rather that we should expect major changes among the different powers, particularly on the geopolitical front. Nationalism and a focus on frontiers are on the increase, and multinationals are going to have to rethink several aspects of the way in which their industrial operations are organized geographically.

The most controversial factor of this new globalization will be the new constraints imposed by environmental concerns.

Supply chains. First of all, there is a need to review supply chains, and this means moving from “just in time” to “just in case” by setting up different procedures at each key stage of production. South-East Asia should come out on top here,because it complements Chinese manufacturing which is becoming more and more geared towards “made in China for China”. Secondly, monetary disturbances have to be taken into account. These are bound to occur in various countries in the next decade, in the context of a disquieting weakening of public finances. Finally, there will be a return to stagflation, i.e. cost inflation with regard to everything the end user is not prepared to pay for, as was the case with oil in the 1970s and now concerns the ores involved in energy transition.

It is the new environmental constraints that will become the most subject of controversy in this new re-globalization. Not only did the West wisely relocate a great many of its most polluting manufacturing operations to China in the last twenty years — during a period when the cost to the environment was not taken into account — but it is now trying to impose a carbon tax on Chinese imports! China is not going to find it easy to accept this double invoicing, since its own environmental cost — of reaching carbon neutrality — is already estimated at $400 billion per year.

Against this background, it is all the more striking that the “last chance meeting” of the World Trade Organization has just been adjourned, at a time when re-globalization has never been in greater need of a makeover.